3 Things You Should Know About Money

3 things you should know about money

Money, the touchy subject. So many of us earn it but aren’t educated about it and the institutions that keep it. I’m not saying we all need to have financial degrees to handle our money but it would’ve been nice if we were teaching these few concepts in school. In the hopes to be your bearer of knowledge, I’ve put together some things I’ve learnt about money, and accounts that keep them.

3 Things you should know about money

1. Inflation

To manage your money the most effective way possible, you need to know that inflation exists. Inflation is a steady increase in the price of goods and services that lowers the buying power of your money. So, if you had money in the bank in 2010. The value of which, could buy you 100 pairs of shoes that year, the same amount of money would only buy you 70 pairs of shoes in 2015. So your money doesn’t decrease but what you can do with it does.

So now that you know about inflation, you can see the flaw in keeping your money in a banking account, which brings me to my next point.

2. Storing your money

Ah, the good ol’ bank account, great for everyday transactions but not so great for saving. A banking account, even the ones that don’t charge administration fees, is not a place for saving your money. To save money, your number one priority is to have your money in an account that at the very least beats inflation. You do not need to know what inflation is and how it works. Keep in mind that it is a percentage. Also know that your money needs to be earning that percentage (or more) yearly.

To find out your county’s rate of inflation use Google. Be sure to search “inflation (your country name) (current year)”. As an example, my search looks like this:”Inflation South Africa 2015″. All my results put the current inflation around 4.5%. When choosing an account for saving purposes I will look at institutions that will give me a rate of 4.5% interest or earning per year AFTER their yearly fees. This way you make sure your money increases with inflation and you can still buy your 100 pairs of shoes in 2015.

In my experience investment houses would be able to provide you with some money market accounts or unit trusts that beat inflation. I’ve not found banks in South Africa that are competitive with their interest rates. Speaking to financial advisers at investment houses are useful for direction on where to place your money.

3. Steer clear of credit

As years have gone by I’ve learnt that you can make your money work for you,regardless of how little you have. You just need to know where to put it, or speak to a financial advisor who will tell you where to put it. Purchasing on credit is the exact opposite of making your money work for you. With credit you’re, in essence, spending your money before you have it.

Having actual money and not living in an overdraft or credit facility is single most important tip I can give you. Cash is king. Your goal should be to pay off your debt as soon as possible. With credit, the interest that you could have been earning on your cash is going into your credit company’s pockets.

Yes certain debt is necessary, like the debt from buying a reasonable car or an affordable house. I’m referring to the unnecessary credit purchases like clothes, holidays and new furniture. These could have waited till you’ve earned enough actual cash to pay for them. That way, while you’re saving for that holiday, your money will be earning interest. With cash you pay your once off fee for your holiday and get on with your life. If you put your holiday on your credit card and pay it off over 6 months, your holiday will work out to double the price. This is due to the extra interest and fees you charged by your credit card provider.

With credit, your money is working for the credit provider. With cash, your money works for you.

I know this post barely scratches the surface on the topic of money but it’s a good start. If you would like some more specific tips and tricks for saving and managing your finances let me know in the comments.

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